PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 10-1308

DENISE MANNELLA

v.

COMMISSIONER OF INTERNAL REVENUE,

Appellant

On Appeal from the United States Tax Court

(Tax Court No. 17531-07)

Tax Court Judges: Hon. Harry Haines

and Hon. Michael B. Thornton

Argued November 17, 2010

BEFORE: AMBRO, FISHER and

GREENBERG, Circuit Judges

(Filed: January 19, 2011)

2

Derek P. Dissinger (argued)

Russell, Krafft & Gruber

930 Red Rose Court

Hempfield Center, Suite 300

Lancaster, PA 17601-0000

Alice L Stewart

Duquesne University School of Law

Low Income Tax Practicum

Room 125

600 Forbes Avenue

Pittsburgh, PA 15282-0000

Raymond C. Vogliano

Eckert, Seamans, Cherin & Mellott

600 Grant Street

44th Floor, U.S. Steel Tower

Pittsburgh, PA 15219-0000

Attorneys for Appellee

John A. DiCicco

Acting Assistant Attorney General

Teresa E. McLaughlin (argued)

Steven W. Parks

Attorneys Tax Division

United States Department of Justice

950 Pennsylvania Avenue, N.W.

P.O. Box 502

Washington, DC 20044-0000

3

William J. Wilkins

Internal Revenue Service

1111 Constitution Avenue, N.W.

Washington, DC 20224-0000

Attorneys for Appellant

Carlton M. Smith

Director, Benjamin N. Cardozo School of Law Tax Clinic

55 Fifth Avenue

New York, NY 10003

Attorney Pro Se as Amicus Curiae

OPINION OF THE COURT

GREENBERG, Circuit Judge.

I. INTRODUCTION

This matter comes on before the Court on the

Commissioner of Internal Revenue=s appeal from a decision of

the United States Tax Court entered on November 5, 2009, in

accordance with a Tax Court opinion dated April 13, 2009, and

a stipulation of the parties dated October 28, 2009, that

together provided that Appellee Denise Mannella did not owe

any income taxes, interest, or penalties for the taxable years

1996 through 2000. In its opinion leading to its decision, the

Tax Court invalidated a Treasury Department regulation, 26

4

C.F.R. ' 1.6015-5(b)(1), that sets a two-year deadline to file a

claim for equitable Ainnocent spouse@ relief under 26 U.S.C. '

6015(f) from liability resulting from a jointly filed federal

income tax return. We now hold that the regulation is neither

contrary to nor an impermissible implementation of section

6015, and, therefore, inasmuch as Denise filed her claim for

innocent spouse relief beyond the regulation=s two-year

deadline for seeking such relief, we will reverse the decision of

the Tax Court. See Chevron U.S.A., Inc. v. Natural Res. Def.

Council, Inc., 467 U.S. 837, 104 S.Ct. 2778 (1984). We,

however, will remand the case to that Court to consider an

equitable tolling contention that Denise advances on this

appeal with respect to the running of the two-year period.1

II. BACKGROUND

A. Statutory and Regulatory Framework

Before addressing the facts of this case, we first quote

the Court of Appeals for the Seventh Circuit=s thorough

explanation of the relevant portions of the Internal Revenue

Code and the related Treasury Department regulation at issue:

1 There is no issue raised on this appeal concerning the

calculation of the taxes, interest, or penalties.

5

Taxpayers filing a joint return are jointly and

severally liable for the entire tax liability shown

or that should have been shown on their return.

26 U.S.C. ' 6013(d)(3). But section 6015 of the

Internal Revenue Code sets forth

grounds->innocent spouse= rules first added to the

Code in 1971 and liberalized since . . . -for

relieving the signer of a joint return of his or her

joint and several liability for understatement or

nonpayment of income tax due.

Section 6015(f), captioned >equitable relief,= provides that >under procedures prescribed by

the [Secretary of Treasury], if (1) taking into

account all the facts and circumstances, it is

inequitable to hold the individual liable for any

unpaid tax or any deficiency . . . ; and (2) relief is

not available to such individual under subsection

(b) or (c) [of section 6015], the [Secretary] may

relieve such individual of such liability.= By

regulation the Treasury has fixed a deadline for

filing claims under subsection (f) of two years

from the IRS=s first action to collect the tax by

(for example) issuing a notice of intent to levy on

the taxpayer=s property. 26 C.F.R. '

1.6015-5(b)(1); see also IRS Rev. Proc.2003-61

' 4.01(3); 26 U.S.C. ' 6630(a).

Lantz v. Commissioner, 607 F.3d 479, 480 (7th Cir. 2010)

(internal citations omitted) (alterations in original). As the

foregoing passage indicates, the two-year deadline for seeking

relief under section 6015(f) does not arise from section 6015

6

but rather comes from the Treasury regulation implementing

subsection 6015(f).

Subsections (b) and (c) of section 6015 also provide

avenues of relief for innocent spouses, but, in contrast to

subsection (f), both contain two-year filing deadlines for

seeking such relief. Subsection (b) provides:

Under procedures prescribed by the Secretary [of

Treasury], ifB

(A) a joint return has been made

for a taxable year;

(B) on such return there is an

understatement of tax attributable

to erroneous items of one

individual filing the joint return;

(C) the other individual filing the

joint return establishes that in

signing the return he or she did not

know, and had no reason to know,

that there was such

understatement;

(D) taking into account all the

facts and circumstances, it is

inequitable to hold the other

individual liable for the deficiency

in tax for such taxable year

7

attributable to such

understatement; and

(E) the other individual elects (in

such form as the Secretary may

prescribe) the benefits of this

subsection not later than the date

which is 2 years after the date the

Secretary has begun collection

activities with respect to the

individual making the election,

then the other individual shall be relieved of

liability for tax (including interest, penalties, and

other amounts) for such taxable year to the

extent such liability is attributable to such

understatement.

26 U.S.C. ' 6015(b)(1) (emphasis added). Subsection (c)

provides for an allocation of liability if the signer of a joint

return is divorced, legally separated, or no longer living in the

same household as the individual with whom the signer filed

the joint return. In a provision paralleling subsection

(b)(1)(E), subsection (c) provides that a taxpayer seeking relief

under (c) must elect such relief Anot later than 2 years after the

date on which the [Secretary] has begun collection activities

with respect to the individual making the election.@ 26 U.S.C.

' 6015(c)(3)(B).

B. Facts

8

Denise2 and her husband Anthony Mannella filed joint

federal income tax returns for the years 1996 through 2000.

The Mannellas agreed to the assessment of a deficiency for the

year 1996. For the years 1997, 1998, 1999, and 2000, the

Mannellas did not pay fully the taxes their returns showed as

due. Consequently, the Commissioner on June 4, 2004,

initiated collection procedures to recover the back taxes that

they owed by sending the Mannellas separate notices of his

intent to levy. The notices indicated, however, that the

Mannellas each had the right to a collection-due-process

hearing before such levy.

The notices instructed the Mannellas how to obtain

innocent spouse relief under section 6015 by including an IRS

publication titled AWhat You Should Know About [t]he IRS

Collection Process,@ which contained the following provision:

2Our use of Denise Mannella=s first name in this opinion does

not suggest a lack of respect but rather is intended to keep the

opinion clear with respect to the parties= identification.

9

Help for an innocent spouse C In some cases,

you may not be responsible for taxes, interest,

and penalties on a joint income tax return.

Contact your local IRS office for more

information. For information about your rights

as an innocent spouse, see Publication 971,

Innocent Spouse Relief. For information on

three ways to get help with the amount you owe,

see Form 8857, Request for Innocent Spouse

Relief (And Separation of Liability and

Equitable Relief).

2 App. at 39, 42. The notices also included IRS Form 12153,

which states that A[i]f you believe that your spouse or former

spouse should be responsible for all or a portion of the tax

liability from your tax return, check here [__] and attach Form

8857, Request for Innocent Spouse Relief, to this request.@ 2

App. at 51.

The IRS sent the notices to the Mannellas= correct

address by certified mail return receipt requested. IRS

records indicate that it received signed return receipts dated

June 17, 2004, for both notices at an IRS Service Center.

Denise asserts, however, that her husband signed her name on

the return receipt and did not inform her that the notice had

arrived until more than two years after its arrival and the

Commissioner does not challenge this assertion. On

November 1, 2006, after learning of the notice of intent to levy

and speaking with an attorney, Denise filed two Form 8857

applications under section 6015, subsections (b), (c), and (f),

for innocent spouse relief from joint and several liability on the

Mannellas= joint returns filed for the years 1996-2000. The

10

Commissioner, however, issued Denise a notice of

determination dated May 3, 2007, denying her relief under

section 6015 because she had not filed her claim within two

years of June 4, 2004, the date that the Commissioner took his

first collection action against her by mailing her notice of the

intent to levy. Denise does not contend that the

Commissioner misapplied the statutory and regulatory

two-year deadline periods, as written, as she does not assert

that she filed her applications within the two-year statutory and

regulatory deadlines period allowed for such applications.

C. Procedural History

In response to the Commissioner=s rejection of her

applications, Denise, acting pro se, filed a petition for relief

with the Tax Court, contending in part:

My claim for relief was denied because it was

filed 4 2 months to[o] late. When the

collection process was started against me [on]

June 4, 2004[,] it was immediately stopped. I

was informed by my husband that everything

was handled and that I was not liable for his tax

obligation. The IRS stopped collection activity

against me so I thought it was taken care of. I

was not aware of any other problems and never

received any other papers from the IRS

concerning my liability for his taxes or anything

concerning my rights as an innocent spouse. I

never received any benefits from my husband

11

not paying his taxes. . . . Denying my claim

because it was filed late when I was never

informed that a time limit existed is wrong.

2 App. at 4. Denise=s husband was informed of his right to

intervene in the Tax Court proceedings, but did not do so.

The Commissioner moved for summary judgment on

the sole basis that Denise=s applications for relief under section

6015 were untimely. She opposed the motion on the ground

that she never received her notice from her husband and

therefore the two-year period for seeking innocent spouse

relief should not have begun to run against her. Denise

represented to the Tax Court that she and her husband were

prepared to testify in support of her contentions at a trial. She

did not argue, however, that the regulation setting a two-year

deadline for requesting relief under subsection 6015(f) was

invalid.

In an opinion dated April 13, 2009, the Tax Court

granted the Commissioner=s motion for summary judgment in

part and denied it in part. The Court determined that the

mailing of the notice to Denise=s last known address triggered

the running of the two-year deadline periods under subsections

6015(b) and (c) regardless of whether she actually received the

June 4, 2004 notice. Accordingly, the Tax Court granted the

Commissioner=s motion for summary judgment on Denise=s

claims under those subsections. Nevertheless, the Court sua

sponte held that the two-year regulatory deadline under

subsection 6015(f) was invalid, a conclusion that it based on its

prior decision in Lantz v. Commissioner, 132 T.C. 131

12

(2009).3 Consequently, the Court concluded that Denise=s

subsection (f) claim was timely and it denied the

Commissioner summary judgment on that claim.

After the Tax Court filed its opinion, the parties

executed a stipulation that if Denise=s subsection (f) request

had been timely, which it was if the regulation was invalid,

Denise Ais entitled to relief from all joint and several liabilities

in income tax, additions to tax, penalties and assessed interest@ for all the taxable years within the scope of this action. See 2

App. at 74. Following the filing of the stipulation, the Tax

Court entered a decision on November 5, 2009, in Denise=s

favor, but reserving the Commissioner=s right to appeal, which

he has done.

III. JURISDICTION AND STANDARD OF REVIEW

The Tax Court had jurisdiction pursuant to 26 U.S.C. ''

6015(e)(1)(A)(ii) and 7442, and we have jurisdiction to review

that Court=s decision granting summary judgment pursuant to

26 U.S.C. ' 7482(a)(1). Our review of the Tax Court=s

decision is plenary. Connecticut Gen. Life Ins. Co. v.

3As we discuss below, after the Tax Court filed its opinion and

decision in this case, the Court of Appeals for the Seventh

Circuit reversed the Tax Court decision in Lantz in an opinion

filed June 8, 2010. See 607 F.3d 479. In this opinion we

refer to the Tax Court opinion in that litigation as Lantz v.

Commissioner and the Court of Appeals opinion as Lantz.

13

Comm=r, 177 F.3d 136, 143 (3d Cir. 1999); ACM P=ship v.

Comm=r, 157 F.3d 231, 245 (3d Cir. 1998).

IV. DISCUSSION

The primary issue on this appeal is whether the

Secretary validly exercised his rulemaking authority in

adopting the regulation setting a two-year deadline for

requesting relief under subsection 6015(f). In considering

this issue we apply the principles the Supreme Court set forth

in Chevron that we recently explained as follows:

[U]nder Chevron, we must first determine >if the

statute is silent or ambiguous with respect to the

specific issue of law in the case, using traditional

tools of statutory construction to determine

whether Congress had an intention on the precise

question at issue.= If congressional intent is

clear, >the inquiry ends, as both the agency and

the court must give effect to the plain language

of the statute.= Where, however, a >statute is

silent or ambiguous with respect to the specific

issue, the court proceeds to step two, where it

inquires whether the agency=s answer is based on

a permissible construction of the statute.=

Lin-Zheng v. Attorney Gen., 557 F.3d 147, 155 (3d Cir. 2009)

(en banc) (internal citations omitted). The Tax Court in this

case, following its opinion in Lantz v. Commissioner in which

it had applied Chevron, held that the regulation conflicts with

14

the clear language of subsection 6015(f) and that, even if the

language of the statute is ambiguous, the regulation

impermissibly implements that subsection. Denise, with

effective assistance from amicus curiae, supplements the Tax

Court opinion by arguing that even if we uphold the regulation

under Chevron, the two-year filing deadline is subject to the

doctrine of equitable tolling and that there should be equitable

tolling in her case to the end that her applications were timely.

We consider each issue in turn.

A. Lantz

As we have indicated, in invalidating the regulation the

Tax Court followed its prior decision in Lantz v.

Commissioner in which it stated:

[b]y explicitly creating a 2-year limitation in

subsections (b) and (c) but not subsection (f) [of

section 6015], Congress has >spoken= by its

audible silence. Because the regulation

imposes a limitation that Congress explicitly

incorporated into subsections (b) and (c) but

omitted from subsection (f), it fails the first

prong of Chevron.

132 T.C. at 139. The Tax Court further reasoned that because

subsection (f), in terms, is only available to taxpayers

ineligible for relief under subsections (b) or (c), Congress, by

omitting the two-year time limit in subsection (f), intended that

the subsection be available to taxpayers who missed the filing

15

deadline under subsections (b) or (c) as a result of some

inequity. Id. at 139-41.

After the Commissioner filed his opening brief on this

appeal, the Court of Appeals for the Seventh Circuit released

the opinion in Lantz, which we quote above, reversing the

decision of the Tax Court in that case and upholding the

two-year regulatory deadline for claims filed under subsection

6015(f). In its opinion the Court of Appeals rejected the Tax

Court=s theory of Aaudible silence.@ In so doing, the Court

noted that Aif there is no deadline in subsection (f), the

two-year deadlines in subsections (b) and (c) will be set largely

at naught because the substantive criteria of those subsections

are virtually the same as those of [subsection] (f).@ Lantz, 607

F.3d at 484. The Court found further support for its decision

in several of section 6015=s provisionsCincluding the

introductory phrase of subsection (f)Cexpressly granting the

Secretary rulemaking authority, and in the circumstance that

subsection (f), rather than requiring the Secretary to grant

relief if certain conditions are met, vests him with discretion to

grant such relief. Id. at 485; see Lopez v. Davis, 531 U.S.

230, 243-44, 121 S.Ct. 714, 723-24 (2001) (A[E]ven if a

statutory scheme requires individualized determinations . . .

the decisionmaker has the authority to rely on rulemaking to

resolve certain issues of general applicability unless Congress

clearly expresses an intent to withhold that authority.@) (internal citation and quotation marks omitted).

B. Chevron - Step 1

16

The Supreme Court in Chevron instructed that courts,

when analyzing administrative regulations to determine if they

are valid, first should look at whether Congress has Adirectly

spoken to the precise question at issue.@ 467 U.S. at 842, 104

S.Ct. at 2781. Denise argues that Congress unequivocally has

spoken to the question at issue here and has precluded the

Secretary from adopting a regulation establishing a two-year

filing deadline under subsection (f). She predicates this

contention on the correct observation that Congress did not

include a two-year filing deadline in subsection (f) equivalent

to that it did include in subsections (b) and (c). Rather,

Congress instructed the Secretary to consider all relevant facts

and circumstances when deciding whether to grant relief under

subsection (f), and stated that relief is available under

subsection (f) only if unavailable under (b) and (c). We

disagree with Denise on this point.

Section 6015 tells us nothing about when claims may be

brought under subsection (f) as the section does not address

this point. We agree with the Court of Appeals for the

Seventh Circuit that this silence is not made audible by the

presence of deadlines in subsections (b) and (c). Though we

recognize that A[i]t is generally presumed that Congress acts

intentionally and purposely when it includes particular

language in one section of a statute but omits it in another,@ see

City of Chicago v. Envtl. Def. Fund, 511 U.S. 328, 338, 114

S.Ct. 1588, 1593 (1994) (internal quotation marks and citation

omitted), the absence of a statutory filing deadline in

subsection (f) similar to those in subsections (b) and (c) does

not require us to conclude that the Secretary cannot impose a

two-year deadline by regulation.

17

It is important to recognize that there can be several

explanations for Congress=s omission of a deadline for filing an

application for relief under subsection (f). To start with,

Congress may have intended to defer the issue of timing to the

Secretary who can establish procedures for granting relief

under subsection (f) and can determine whether relief, no

matter when sought, should be granted.4 On the other hand, it

is possible that Congress intended that there not be a deadline

for claims under subsection (f) or, alternatively, that any

deadline imposed by a regulation under that subsection be

greater than the two-year period provided in subsections (b)

and (c). But we cannot say that section 6015, in terms,

requires that we embrace any particular view of Congress=s

intent with respect to a subsection (f) filing deadline.

4There is considerable discussion on this appeal between the

parties involving the question of whether a limitations period is

procedural or substantive. But we will not focus on that

discussion as we are not concerned with issues such as the

applicability of federal or state law under Erie R. Co. v.

Tomkins, 304 U.S. 64, 58 S.Ct. 817 (1938), or the choice of

law when the law of different states may be implicated in

litigation. Rather, we are concerned with whether Congress

intended to authorize the Secretary to include a filing time

deadline among the Aprocedures@ that he can adopt to

implement subsection 6015(f).

18

Nor is the question of whether there can be a two-year

deadline period under subsection (f) answered by its provision

that the Secretary Atak[e] into account all the facts and

circumstances@ when deciding whether to grant relief under

that subsection. See 26 U.S.C. ' 6015(f)(1). Denise argues

that this instruction makes clear that the timing of the request is

a factor that the Secretary must take into account in

considering a claim under subsection 6015(f). Congress,

however, included an identical instruction in subsection (b),

see 26 U.S.C. ' 6015(b)(1)(D), despite the presence of an

explicit filing deadline in that subsection, see subsection

(b)(1)(E), and the requirement that relief be granted if all the

criteria listed in subsection (b)(1) are satisfied. The Secretary

thus cannot grant relief to a taxpayer who elects to seek

subsection (b) relief after the deadline under that subsection

has passed, nor can he consider timing as a factor in a

determination of whether to grant relief if the taxpayer makes a

request for relief within the two-year period. Because the

Secretary is prevented from considering the timing of an

election for relief under subsection (b) notwithstanding the

statutory instruction to Atak[e] into account all the facts and

circumstances,@ we hardly can hold that the exact same

instruction clearly requires the Secretary to consider the timing

of a request for relief on an individualized basis under

subsection (f).

Denise also points to the circumstance that relief under

subsection (f) is limited to individuals ineligible for relief

under subsections (b) and (c). See 26 U.S.C. ' 6015(f)(2).

Because the requirements for relief under subsections (b) and

(f) are similar, though not identical, Denise argues that

Congress must have intended that relief under subsection (f) be

19

available to persons who missed the filing deadline under

subsection (b). Yet Denise does not dispute that, regardless of

timing, a taxpayer would be eligible for relief under subsection

(f) but not subsection (b) when the taxpayer is seeking relief

from liability for an underpayment as distinguished from an

understatement of taxes, undoubtedly a very large category of

cases, or when the taxpayer is seeking relief from an

understatement that he or she knew or should have known was

made. Accordingly, subsection (f)=s exclusion of those

eligible for relief under subsection (b) and (c) sheds little light

on the question before us.

What subsection (f)(2) may mean is that for relief to be

granted under subsection (f) it must never have been available

under subsection (b) or (c) whether or not timely sought under

those subsections. Indeed, such a view of Congress=s intent

would be consistent with the establishment of explicit deadline

periods in subsections (b) and (c). Along this line we point

out that it would be strange if Congress established a deadline

for a claim under one subsection but also provided that a

claimant at a date beyond that deadline could make the same

claim for the same type of relief under another subsection and

thereby effectively by-pass the deadline period. In addressing

this point we reiterate that among the reasons that relief might

be available under subsection (f) that never was available

under subsection (b) or (c) is that subsection (f) relief may be

available for both understatements and underpayments of taxes

whereas subsections (b) and (c) are limited to understatements.

Therefore, the provision of subsection (f) limiting the

availability of that subsection to taxpayers ineligible for relief

under subsection (b) and (c) has real meaning even if it does

not save claims that had been, but no longer are, within the

20

scope of subsections (b) and (c) because, if asserted, they

would be untimely under those two subsections. Overall, we

see no escape from the conclusion that section 6015 is

ambiguous on the question of when a request for relief may be

brought under subsection (f).

C. Chevron - Step 2

Inasmuch as Congress has not spoken directly to the

precise question in issue, i.e., can the Secretary by regulation

establish a deadline for a taxpayer to seek subsection (f) relief,

we next must examine whether the Secretary=s imposition of a

two-year deadline for claims brought under subsection (f)

permissibly implements that subsection. In resolving this

question, we defer to the Secretary=s implementation of the

subsection Aunless the legislative history or the purpose and

structure of the act clearly reveal a contrary intent on the part

of Congress.@ Appalachian States Low-Level Radioactive

Waste Comm=n v. O=Leary, 93 F.3d 103, 110 (3d Cir. 1996)

(quoting Chem. Mfrs. Ass=n v. Natural Res. Def. Council, Inc.,

470 U.S. 116, 126, 105 S.Ct. 1102, 1108 (1985)). ASo long as

the regulation bears a fair relationship to the language of the

statute, reflects the views of those who sought its enactment,

and matches the purpose they articulated, it will merit

deference.=@ Id. at 110 (quoting Sekula v. F.D.I.C., 39 F.3d

448, 452 (3d Cir. 1994)).5 We therefore turn to the legislative

5The deference is particularly broad when the regulation is

adopted pursuant to authority in a specific statute as

distinguished from being adopted under general rule making

21

history and purpose of section 6015 to determine whether they

reveal that Congress had an intent in adopting section 6015(f)

that was contrary to the regulation establishing the two-year

deadline. See id.

authority. See Armstrong World Indus. Inc. v. Comm=r, 974

F.2d 422, 441 (3d Cir. 1992).

22

In her brief, Denise discusses the legislative history of

the provisions at issue at some length. In particular, she

points to statements various Senators made and passages from

a joint conference report to the effect that Congress intended to

expand significantly the prior innocent spouse provisions in

1998 and 2006. See appellee=s br. at 25-34. Certainly there

is no doubt but that Congress significantly expanded the

circumstances in which a taxpayer could obtain innocent

spouse relief when it enacted section 6015 in its current form.

For example, the current statute eliminates the previous

requirements that innocent spouse relief be limited to grossly

erroneous items attributable to the other spouse and that the

Secretary grant relief only for understatements exceeding a

certain monetary threshold. See 26 U.S.C. ' 6013(e),

repealed by Internal Revenue Restructuring and Reform Act of

1998, (ARRA@), Pub. L. No. 105-206 ' 3201, 112 Stat. 685,

740. Moreover, the addition of subsection (f),

notwithstanding the Secretary=s adoption of the regulatory

two-year deadline, allows for the possibility of there being

relief for underpayments and for understatements of which the

taxpayer seeking relief knew or should have known.

The closest Denise is able to come to pointing to any

legislative history suggesting that Congress in enacting

subsection 6015(f) had an intent inconsistent with the terms of

the regulation is in the legislative history of 26 U.S.C. ' 66.

That provision of the Internal Revenue Code addresses the

treatment of community property in community property states

when spouses do not file income tax returns jointly. Congress

amended subsection (c) of section 66 by the same act that

23

created subsection 6015(f)6 and therefore, not surprisingly,

subsection 66 provides for equitable relief in language that

mirrors that of subsection 6015(f). See 26 U.S.C. ' 66(c)(4);

RRA Pub. L. No. 105-206 ' 3201, 112 Stat. 685, 740. Some

statements in the legislative history of section 66(c) suggest

that the Secretary, when Ataking into account all the facts and

circumstances,@ 26 U.S.C. ' 66(c)(4), should consider the

timing of the request for relief.

The foregoing history, which the Tax Court discussed

in its opinion in Lantz v. Commissioner, 132 T.C. at 141-44,

lends some support to Denise=s position, but it fails to

overcome the deference that we must give to Treasury

Regulation ' 1.6015-5(b)(1) under Chevron and it does not

clearly demonstrate that Congress intended that requests for

relief under subsection 6015(f) not be subject to a two-year

filing deadline. Accordingly, the regulation is valid. See

also Swallows Holding, Ltd. v. Comm=r, 515 F.3d 162, 172 (3d

Cir. 2008) (ADrawing [a] temporal line [to claim a tax

deduction] is a task properly within the powers and expertise

of the IRS. Chevron recognizes the notion that the IRS is in a

superior position to make judgments concerning the

administration of the ambiguities in its enabling statute.@).

6See RRA, Pub. L. No. 105-206, 112 Stat. 685.

24

Finally, in our discussion of Chevron we take note of

Denise=s argument that the inclusion of deadline periods in

subsections (b) and (c) but omission of such a period in

subsection (f) Ademonstrates Congressional intent that requests

for equitable relief not be subject to a bright-line time

limitation, but rather allow the taxpayer to request relief during

the 10-year collection period of [26 U.S.C.] ' 6502.@

Appellee=s br. at 15. But inasmuch as Section 6502 is a

limitation only on the government=s time for collection, Denise

really is arguing that there is no deadline for filing a subsection

(f) claim and that the Secretary by regulation cannot fill the

void that Congress left by omitting such a deadline. We are

reluctant to reach such a result as it would be inconsistent with

the practice of the federal courts to borrow statutes of

limitations from appropriate sources, even state law, to fill the

void that Congress leaves when it does not establish a statute of

limitations. See, e.g., Lake v. Arnold, 232 F.3d 360, 366 (3d

Cir. 2000). Moreover, Denise=s argument is hardly consistent

with the general practice of Congress to provide for all sorts of

specific periods for action to be taken under the Internal

Revenue Code.7

7We have not overlooked our contemporaneous opinion in Rea

v. Federated Investors, No. 10-1440, 2010 U.S. App. LEXIS

25501, at * 7, F.3d , (3d Cir. Dec. 15, 2010), a

case construing a statute dealing with employment protection

to persons who had been or were in bankruptcy enacted in a

format in some ways similar to that in section 6015. There we

would not expand on the limited protection given to persons in

private employment from bankruptcy discrimination to include

the more expansive protection from bankruptcy discrimination

25

given to pubic employees. In Rea we declined to Acontravene

congressional intent by implying statutory language that

Congress omitted.@ But Rea dealt with the construction of a

statute, not with whether a regulation implementing a statute

should be upheld under the principles in Chevron, the issue

involved here. Thus, though we uphold the regulation at issue

here we are not Aimplying@ anything into section 6015.

26

D. Equitable Tolling

Denise lastly argues that even if the regulation is valid,

it is subject to equitable tolling and she urges that the deadline

period be tolled here.8 We have held that Athe tolling of filing

deadlines is appropriate where principles of equity would

make the rigid application of a limitation period unfair.@

Walker v. Astrue, 593 F.3d 274, 279 (3d Cir. 2010) (internal

quotation marks and citation omitted). There may be

equitable tolling A(1) where the defendant has actively misled

the plaintiff respecting the plaintiff's cause of action; (2) where

the plaintiff in some extraordinary way has been prevented

from asserting his or her rights; or (3) where the plaintiff has

timely asserted his or her rights mistakenly in the wrong

forum.@ Hedges v. United States, 404 F.3d 744, 751 (3d Cir.

2005) (internal quotation marks and citation omitted). But

inasmuch as the Tax Court did not address the equitable tolling

issue and additional facts not in the record may be material to

the issue we think that that Court should explore the issue in

the first instance. We therefore will remand the case to the

Tax Court to decide whether the Treasury Department

regulation at 26 C.F.R. ' 1.6015-5(b)(1) is subject to equitable

tolling and, if so, whether Denise meets the equitable tolling

standard.

8 In the section of her brief dealing with equitable tolling

Denise does not explain why there should be equitable tolling

in this case. Rather, she concentrates on why there can be

equitable tolling.

27

V. CONCLUSION

For the foregoing reasons we will reverse the decision

of the Tax Court entered November 5, 2009, to the extent that

that decision reflected the Tax Court=s opinion that the

regulatory deadline for claims under subsection 6015(f) is

invalid, and will remand the case to the Tax Court to consider

the equitable tolling issue. The parties will bear their own

costs on this appeal.

1

Denise Mannella v. Commissioner of Internal Revenue

No. 10-1308

AMBRO, Circuit Judge, dissenting

Spouses seeking relief from joint and several liability for understatements or underpayments of income taxes look to 26 U.S.C. § 6015. Among other things, it spares innocent spouses when it is equitable to do so. Id. § 6015(b) (dealing with understatements).

1 But to be eligible for relief they must

apply within two years after the IRS begins collection activity. Id. § 6015(b).

What if an innocent spouse does not qualify because two years have passed since collection efforts began? It appears there is a safety-valve (Ms. Mannella’s counsel calls it a ―catchall‖) ─ § 6015(f). All that it requires, other than showing relief is not available under subsection (b), is that it not be fair to hold the innocent spouse responsible for the other spouse’s tax liability. The intuitive (indeed, blink) thought, then, is that the time to file under subsection (f) extends beyond two years. After all, it can’t logically be less time, as subsection (b) is available for at least some taxpayers who elect within two years, and thus, one would think, (f) would be available for later applicants. Is it that easy? Well, no. There is a catch (as opposed

1 Section 6015(c) also provides relief for certain

divorced or separated taxpayers, and for these persons

imposes an explicit two-year statute of limitations. However,

it is of little relevance to our case and is not discussed in this

dissent.

2

to a catchall), we are told. Though subsection (f) enacted by Congress sets no time limit to seek relief, the Department of the Treasury

2 has adopted a Regulation ─ 26 C.F.R. § 1.6015-

5(b)(1), complemented by IRS Rev. Proc. 2003-61 § 4.01(3)3

─ that does. It is two years.

The United States Tax Court has overruled that deadline, Mannella v. C.I.R., 132 T.C. 196 (2009), and the IRS appeals. Its argument, which won in the Seventh Circuit Court’s decision in Lantz v. C.I.R., 607 F.3d 479 (7th Cir. 2010), is essentially that Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), requires us to defer to its judgment, as that judgment is reasonable.

The Tax Court, whose hands heretofore were tied only in the Seventh Circuit,

4 reasons that the Regulation is invalid

under step one of Chevron’s procedure for reviewing an agency’s construction of a statute it administers because Congress has spoken directly to the issue involved. Specifically, the Tax Court reasons that the Regulation ―runs directly contrary to the nature of the relief provided in section 6015(f).‖ 132 T.C. at 202. And even were subsection (f) deemed silent or ambiguous, ―a 2-year limitations period is not a permissible construction of [that provision], and

2 I use ―Department of the Treasury,‖ ―Secretary‖ (or

―Secretary of the Treasury‖), the ―Service,‖ and ―IRS‖

interchangeably.

3 See also Rev. Proc. 2000-15 § 4.01(3).

4 See Golsen v. Commissioner, 54 T.C. 742, 1970 WL

2191 (1970), aff’d 445 F.2d 985 (10th Cir. 1971)

(determining that the Tax Court must apply the law of the

Court of Appeals to which an appeal for that case would later

lie).

3

therefore [the Regulation] is invalid under Chevron step 2,‖ id., which holds that congressional silence or ambiguity on a specific issue confers on the administrative agency the power to construe the statute in any way that is permissible (that is, reasonable).

I agree with my colleagues, and not the Tax Court, that Congress has not spoken directly on what the timeframe under subsection (f) must be. Indeed, the subsection is literally silent.

5

In that case, Chevron’s second step comes into play. My colleagues, and all three members of the panel in Lantz, hold that the Regulation passes muster. They reason, per Chevron, that deference is due an agency’s construction of a statute it implements, i.e., a presumption of validity attends that construction. Thus, though Ms. Mannella’s position has ―support,‖ Maj. Op. at 22, and ―[t]he arguments against the Tax Court’s interpretation of subsection (f) as barring a fixed deadline . . . are powerful,‖ Lantz, 607 F.3d at 486, they do not overcome that presumption. Put another way, that some, or even most, courts would have chosen a different deadline than that picked by the IRS is irrelevant, as the Supreme Court has settled since 1984 who gets first call in construing the statute.

6

5 That said, the Tax Court’s reasoning is not so

specious that it deserves to be dismissed as simply

oxymoronic by its use of ―audible silence.‖ Lantz, 607 F.3d

at 481. That gibe, however, does sidestep another oxymoron

– humble pedantry.

6 As this is settled law, I don’t enter the well-vetted

briarpatch of whether the Supreme Court should have

accorded agencies of the Executive Branch interpretive

powers that courts thought by tradition belonged to them. See

4

But that first call must be reasonable. It is hard to say that is so when the IRS gives no reasons for ―add[ing] a new threshold requirement,‖ Rev. Proc. 2003-61 §3.01, for subsection (f) eligibility. ―It is well-established that an agency’s action must be upheld, if at all, on the basis articulated by the agency itself.‖ Motor Vehicle Mfrs Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 50 (1983). Here, however, the IRS has not advanced any reasoning for its decision to impose a two-year limitations period on taxpayers seeking relief under subsection (f), leaving us no basis to conduct the analysis mandated by Chevron step two.

There may exist justifications on which the IRS could have reasonably relied in order to impose a two-year limit on subsection (f) relief. The problem is that there are also arbitrary and capricious reasons that, if articulated by the Service as the basis for the two-year limit, would require us to strike down that limit—for example, if the IRS enacted the two-year deadline based on an incorrect belief that the statute required it, or based on a factual supposition belied by the administrative record. See, e.g., Zheng v. Gonzales, 422 F.3d 98, 120 (3d Cir. 2005) (rejecting immigration regulation at Chevron step two because it was based on an impermissible reading of the 8 U.S.C. § 1255(a)). Because the IRS has not articulated its reasoning, we cannot discern whether the two-

generally Jack M. Beerman, End the Chevron Experiment

Now: How Chevron Has Failed and Why It Can and Should

be Overruled, 42 Conn. L. Rev. 779 (2010); Cass R. Sunstein,

Law and Administration After Chevron, 90 Colum. L. Rev.

2071 (1990); Cynthia R. Farina, Statutory Interpretation and

the Balance of Power in the Administrative State, 89 Colum.

L. Rev. 452 (1989); Joseph F. Weis, Jr., A Judicial

Perspective on Deference to Administrative Agencies: Some

Grenades From the Trenches, 2 Admin. L. J. 301 (1988).

5

year limit falls into the permissible, or the arbitrary and capricious, category.

Into the vacuum left by the IRS the Lantz Court has injected reasoning of its own, which my colleagues cite at length. But it is black-letter law—and a necessary corollary of the deference owed to agencies—that courts may not supplement deficient agency reasoning. Sec. & Exch. Comm’n v. Chenery Corp., 318 U.S. 80, 87 (1943) (―The grounds upon which an administrative order must be judged are those upon which the record discloses that its action was based.‖). Thus, the Lantz Court’s surrogate surmising of agency reasons does not, I believe, save the two-year limit.

7

Further, I do not find Lantz’s reasoning in support of the two-year limit to be convincing. I will address those reasons, which my colleagues seemingly endorse, in turn.

7 My colleagues largely do not engage in this exercise

(though nothing they write shows disagreement), instead

rejecting Ms. Mannella’s arguments against the two-year

limit because they do not ―clearly demonstrate that Congress

intended that requests for relief under subsection 6015(f) not

be subject to a two-year filing deadline.‖ Maj. Op. at 20. By

this approach my colleagues place on Ms. Mannella the

burden (a heavy one, at that) of proving that it is not

reasonable to adopt a deadline backed by no reason. I do not

buy this approach. Moreover, it also ducks the critical

inquiry—whether the IRS’s reason for implementing the two-

year limit was ―arbitrary, capricious, an abuse of discretion,

or otherwise not in accordance with law.‖ 5 U.S.C.

§ 706(2)(A). By abjuring reason, the IRS, I believe, abuses

its discretion.

6

1. Reason: The Lantz Court wrote that, absent a two-year deadline in (f), the two-year deadline in (b) would be made superfluous, as ―the substantive criteria of th[at] section[] are virtually the same as those of (f).‖ Lantz, 607 F.3d at 484. Indeed, it took this thought even further by stating that ―[h]ad the Treasury decided to impose no deadline on the filing of claims under subsection (f), or even just a deadline longer than two years, or in lieu of a fixed deadline the flexible deadline of the laches doctrine, it would have been undermining the two-year deadline fixed by Congress in subsection[] (b).‖ Id.

Response: To begin, to the extent that it is correct that the ―substantive criteria‖ of (b) and (f) are ―virtually the same,‖ id. at 484, then Lantz’s approach renders subsection (f) superfluous, which cannot be what Congress intended. As Lantz later notes, however (and the majority agrees, Maj. Op. at 18), there is a large class of taxpayers who would be eligible for relief under (f), but not (b), because the latter, unlike the former, applies only to: (i) tax understatements, and not tax underpayments; id. at 486; and (ii) spouses who lacked actual or constructive knowledge of the understatement.

Moreover, subsection (f) will not ―undermin[e]‖ the two-year deadline imposed in subsection (b) even as to those taxpayers who (but for the two-year limit) might qualify under both subsections. Of significance, (f) is discretionary, whereas (b) is mandatory. Compare § 6015(f) (―the Secretary may relieve [the innocent spouse] of such liability‖), with § 6015(b) (―the [innocent spouse] shall be relieved of liability for tax‖) (emphases added). Thus, even if (f) has no time limit, taxpayers who might qualify under (b) would be well-advised to file in time to take advantage of that mandatory provision instead of waiting to seek discretionary relief under (f). Put another way, Congress could have chosen to free the

7

IRS to afford discretionary relief to innocent spouses who missed the two-year deadline in certain exceptional cases, while maintaining the two-year limitations period for the mine-run of cases.

In addition, as my colleagues note, Maj. Op. at 21-22, Congress amended 26 U.S.C. § 66 (addressing the treatment of community property when spouses do not file joint returns in community-property states) by adding a subsection (c) at the same time it added subsection (f) to § 6015, and the language of each subsection mirrors the other. Statements in the legislative history of § 66(c) indicate that the IRS should consider the timing of the request for relief. H.R. Rep. No. 98-432, pt 2, at 1501 & 03 (1984) (the IRS should consider, inter alia, ―whether the defense was promptly raised so as to prevent the period of limitations from running on the other spouse‖). Moreover, the Tax Court pointed out in its decision now reversed by the Seventh Circuit that, ―[i]n [the] announcement of the proposed regulations under [§] 66(c), 67 Fed. Reg. 2841 (Jan. 22, 2002), the Secretary [of the Treasury] observed that the relief provided in sec. 66(c) is analogous to the relief provision in section 6015(b) *** [and] section 6015(f).‖ Lantz v. C.I.R., 132 T.C. 131, 142 n.9 (2009), overruled by 607 F.3d 479 (7th Cir. 2010).

2. Reason: The Lantz Court also observed that ―[s]ince the government can refuse to grant equitable relief to someone who meets the statutory criteria and applies within two years of the first collection action, why can’t it decide to deny relief to a class of applicants defined as those who waited too long?‖ 607 F.3d at 485 (emphasis in text).

Response: I agree that the answer to this rhetorical question is that the Secretary can exercise the discretion granted by subsection (f) either case-by-case or categorically. Cf. Lopez v. Davis, 531 U.S. 230, 243-44 (2001) (Bureau of

8

Prisons could exercise its discretion to reduce the sentences of certain prisoners on a categorical basis). However, because it is not clear why the IRS promulgated the two-year limit (or whether it even purported to do so as an exercise of its discretion at all, rather than out of a misguided perception of what the statute required), its authority to exercise its discretion categorically should not save the two-year limit the Regulation by ukase imposes.

3. Reason: Though ―innocent spouses who fall through the cracks in (b),‖ Lantz, 607 F.3d at 484., have the safety protection of (f), ―[t]he details . . . were left to the Treasury Department to work out . . . .‖ Id. The preamble to (f) confers on the Secretary of the Treasury the right to prescribe ―procedures‖ to relieve individuals of liability on joint income tax returns. When claims may be brought is such a procedure. ―Congress’s authorizing an agency to grant discretionary relief under procedures that the agency is to devise itself . . . writes the agency a blank check; and one of the blanks on the check is the deadline for applying for such relief.‖ Id. at 485.

Response: If the preamble to both subsections (b) and (f) is ―[u]nder procedures prescribed by the Secretary,‖ and (b) has a deadline of two years while (f) does not, then is not that deadline substantive rather than procedural? Procedures here cover how to go about making a request for relief, and limitations periods are generally considered substantive. Cf. Lafferty v. St. Riel, 495 F.3d 72, 76 (3d Cir. 2007) (statutes of limitation are substantive, not procedural, for purposes of determining whether state or federal law applies in diversity cases). More specifically, in the tax context ―a time bar is not simply a procedural rule. In the case of equity, it has the substantive effect of making one circumstance, the time of the claim, the only relevant factor.‖ Hall v. C.I.R., 2010 WL 3703837 *3 (U.S. Tax Ct.).

9

4. Reason: Finally, the Lantz Court observed that the IRS could impose a deadline for subsection (f) applications ―designed to reduce the flow to manageable proportions.‖ 607 F.3d at 486.

Response: While it may be true that the IRS could impose a deadline in order to reduce the sheer number of applications for relief under subsection (f), that observation is of little relevance here, where there is no administrative (or other) record of an unmanageable flow of late-filed exemption applications.

* * * * *

To deny taxpayers who miss the deadline to invoke subsection (b) even a chance to make an equitable exemption claim under (f) is concededly ―harsh.‖ Id. Those taxpayers are left in a Catch-22 paradox: they are ineligible to seek an exemption under (f) unless ineligible under (b), but once ineligible as to timing under the latter they can’t be eligible under the former. The take-away thought for some may be that Congress could have drafted directly (or more clearly) but it didn’t, and now the agency gets to make the gatekeeping rules. But the agency only gets to do so within reason.

And there’s the rub. It gave no reasons. Courts thus make up or surmise reasons (and even they underwhelm). Is this the proper way to review interpretive decisions by agencies?

The Supreme Court has answered that question in the negative. To repeat: ―[i]t is well-established that an agency’s action must be upheld, if at all, on the basis articulated by the agency itself.‖ Motor Vehicle Mfrs Ass’n, 463 U.S. at 50. When courts ignore that admonition, Chevron becomes an

10

exit ramp to the twilight zone by ―reliev[ing] the pressure on agencies to develop a full, expert record . . . .‖ Elizabeth V. Foote, Statutory Interpretation or Public Administration: How Chevron Misconceives the Function of Agencies and Why it Matters, 59 Admin. L. Rev. 673, 710 (Fall 2007). In this way, ―[r]eviewing courts can brush off serious challenges to agency decisions by invoking Chevron without engaging whether the agency is thwarting imperfectly expressed congressional intent.‖ Beerman, End the Failed Chevron Experiment Now: How Chevron Has Failed and Why It Can and Should be Overruled, 42 Conn. L. Rev. at 784. I believe this is what happened here, and thus respectfully dissent.